Banks in Israel: NIS 500 billion in current accounts, on which the public does not benefit from interest (Photo: ShutterStock)
Does the fact that the Israeli government is showing incompetence in dealing with the cost of living lead to the privatization of this struggle? At least according to a bill that was placed on the Knesset table, apparently yes.
Earlier this week, Prime Minister Benjamin Netanyahu convened the Committee to Combat the Cost of Living. However, apparently not only the opposition, but also the coalition, believe that this committee is intended for PR purposes only and will not make decisions that benefit the public.
Knesset Members Moshe Gafni and David Bitan, Chairman of the Finance and Economy Committees, together with former Tourism Minister Orit Farkas-Hacohen, submitted a bill that would authorize the Governor of the Bank of Israel to require banks to pay increased interest rates on deposits held by the public, mainly on funds in current accounts, which bear no interest at all.
MK Moshe Gafni, Chairman of the Finance Committee (Photo: Knesset Spokesperson, Noam Moshkovitz, Knesset Spokesperson)
NIS 500 billion in current accounts
The bill states, among other things: "The cumulative sum of bank customers' money in deposits and current accounts stands at huge sums. For example, in May 2023, total bank accounts and customer deposits reached a record NIS 1.4 trillion, of which more than NIS 500 billion is in current accounts (more than 35%), money that bears no value to bank customers.
This phenomenon exists, as these funds constitute a source of financing for the banks to provide loans on their behalf, and also a source for depositing money daily at the Bank of Israel in exchange for receiving interest. As a result of all this, the banking corporations make many profits, which, in the current situation, are not always transferred at an appropriate rate to the entire customer public.
The problem presented here is exacerbated by Israel's highly centralized banking system, which suffers from a prolonged lack of competition. Therefore, in the absence of real competition for the customer's heart, and given that there is a market failure in the absence of professional care, government intervention is required.
The bill aims to address the difficulties described above, in a balanced and measured manner. This is in view of the fact that the authority is given to a professional body responsible for the issue, the Governor of the Bank of Israel, who will determine the appropriate and professional manner to deal with this complex issue, in a manner that will balance between the good of the customer public and the important interest of maintaining stability, profitability, and resilience of the banking system in the State of Israel.
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MK David Bitan, Chairman of the Economy Committee (photo: photo processing, Knesset Spokesperson, Noam Moshkovitz)
Apropos increased competition
There is no doubt that the applicants of the proposal are right: in Israel there is no real competition between the banks. However, the question is whether increasing supervision over them, through the Governor of the Bank of Israel, is the solution, or whether it is better to expand the number of entities offering financial services.
Recall that earlier this week, the money transfer platform Paybox published that the money stored in the service, which will be stored in the app, will bear an annual interest rate of 3%. Although this proposal is limited to NIS 20,000, it also outlines a different direction for decision makers: not legislation that would require supervision, but one that would also open the conservative financial market to greater competition.
Former Minister MK Orit Farkas Hacohen, one of the bill's initiators (Photo: Oren Cohen)
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